Indonesia - Hail the peace but watch the corruption and investments

Updated On: Aug 15, 2006

Indonesia’s most positive news this year is perhaps the peace deal in Aceh. The Helsinki peace agreement had normalized the relations between the Indonesian government and the Free Aceh Movement (GAM).

According to Antara, Human Rights and Justice Minister Hamid Awaluddin said that warm welcome by the people of Aceh proved that peace that had been achieved was not merely on the paper. "The peace was achieved not only on the paper but also at the hearts of the people of Aceh," he said. According to Jakarta Post, a poll conducted by the Jakarta-based Indonesian Survey Circle (LSI), found that 67 percent of people surveyed in the province said they were satisfied with the present security and political environment.

However, things are not going so smoothly elsewhere. The World Bank has exposed corrupt practices linked to three loans for infrastructure projects in Indonesia, cancelling them and demanding millions of dollars in refunds, according to the Jakarta Post. "The bank has found evidence supporting allegations of bribes and the making of other illicit payments in respect of three consulting contracts entered into by the Indonesian government," the World Bank letter said. The loans were made through the Ministry of Public Works with consultants WSP International Ltd. The Jakarta Post report gave no details about the consulting company.

Tracing back the money may be difficult as the bank has requested refunds worth a total of some $4.6 million which had already been disbursed. While getting back disbursed funds is difficult, the World Bank is able to punish Indonesia for its insufficient safeguards in other ways. In retaliation for the corruption scandal, agreements for loans totalling $1.5 million dollars yet to be disbursed were dropped by the World Bank.

This is not the first time that the World Bank has to deal with Indonesia’s institutionalized corruption. In May 2005, the World Bank exposed corruption in the implementation of a $203,000 poverty alleviation program in Indonesia and blacklisted five individuals and two firms from international aid and grants then.

Somewhat coincidentally, there seems to be a vote of no-confidence in Indonesia’s will to tackle its serious problems by its own home-grown conglomerates. The decision by Indonesia's Salim Group, Indonesia’s largest, to invest billions of dollars (US$3 billion) in an infrastructure project in the Indian state of West Bengal has ruffled many Indonesians who argue that the capital was vital for the country's own infrastructure projects.

'Why invest in another country when Indonesia is in need of investments to ease unemployment pressures and boost economic growth?' asked Mr Dradjad Wibowo, a member of the parliamentary commission on investment and taxation. He phrased Salim’s obligations to invest back home as a moral obligation. 'The company has made its money in this country. Hence, I think it is morally obliged to pay back by investing in the country. But of course we can't force them,' he said. The politician also pointed out the Indonesian government’s help to the group when its BCA bank was floundering at the height of the country's monetary crisis in 1998.

With such furor brewing over the deal, it is no wonder that the Salim group had been keeping the deal under water with little mention of it in the media until the politicians decided to take up the issue. The Salim Group is famous for its joint venture with the Singapore government in constructing the highly successful BatamIndustrial Park. Its investment in India this round will give Bengalese a highway, a township and two special economic zones as the Indonesian authorities look on with red eyes.

Meanwhile the Indonesian President was disappointed with the widespread negative perceptions of Indonesia’s economy gathered during the de facto investment tours in Malaysia and Singapore. 'The feeling is that of 'nelongso' when I spoke to investors in Singapore,' President Yudhoyono told the meeting. Nelongso means sad in Javanese. Investors prefer to put their money in India, China, Vietnam and even Russia, he said, in what seemed to be an indirect reference to the Salim Group's deal in India, though he did not name the company. 'I have spoken about reforms, good governance, improvement in business climate, but our investor friends abroad are still waiting for something concrete before they want to come in,' he lamented.


Peace deal brings harmony to RI, GAM, says Ahtisaari (Antara, 13 August 2006)

World Bank exposes Indonesia graft (Bangkok Post, 13 August 2006)

Poll finds Acehnese more optimistic about the future (The Jakarta Post, 11 August 2006)